Interview with Jim Rogers: Commodities Are a Great Place to Be, No Matter What

Jim Rogers is one of the most respected investors in the world. I had a chance to chat with him the other morning to get more details about some of his recent comments in the media.

Damien Hoffman: Jim, you were in the media a few times last week and I want to follow up on a few points you made. You said on Bloomberg that Nouriel Roubini did not do his homework regarding the asset bubbles about which he is now warning. Can you explain what homework he did not do?

Jim: All of it. How can you talk about a bubble when assets such as silver are 70% below their all-time high? Same for coffee, sugar, cotton, natural gas, and many more. I have a problem talking about a bubble when assets are this depressed from their all-time highs.

A bubble is when assets are screaming to new highs everyday, everyone is talking about them, and everyone owns them. Right now, virtually no one owns commodities. So for Mr. Roubini to talk about a bubble in commodities defies comprehension. It proves he does not understand markets.

I am flabbergasted at Mr. Roubini’s comment about bubbles because there is not a single market in the world making all-time highs except Gold, US Government Bonds, Cocoa, and the Sri Lankan stock market. That’s hardly reason to call for a bubble. So, I am most perplexed about this alleged bubble which is out there.

If an asset rises 100% in one year, that’s a great year, but not necessarily a bubble. Look at oil. It’s up huge off the bottom but nowhere near its old highs. Look at Citigroup (C). The stock is up 3 or so times off the bottom.

Damien: … and I doubt long term shareholders feel like they are in a bubble.

Jim: Exactly. And since Mr. Roubini thought oil would stay below $40 a barrel for all of 2009, I would love for him to tell me and the rest of the world exactly where are all the oil supplies because the International Energy Agency (IEA) — which has the best global data set on energy supplies — has no idea where is the oil. Mr. Roubini should tell us where this price suppressing oil supply is hidden. All the oil possessing countries in the world have declining reserves. All the oil companies have declining reserves. So Mr. Roubini must know something the rest of us don’t.

Damien: On another note, Gold has been reaching new all-time highs, although not inflation adjusted. You said Gold may reach $2,000 an ounce over the next decade. Can you explain what variables will push Gold to $2,000?

Jim: First, I hope you will keep Mr. Roubini’s statement where he said Gold going to $2,000 an ounce by 2019 is “utter nonsense.” I think you’re going to get a chance to call him before 2019 to ask him what he thinks of Gold at $2,000 and why he thought it was “utter nonsense.”

Regarding variables, it’s very clear there is huge suspicion about paper money around the world. This suspicion is gathering steam. Governments are printing huge amounts of money. This has always led to higher prices. Maybe I am wrong and it’s different this time. But I doubt it.

Additionally, no new large gold mines have been opened in decades. Some of those mines are over 100-years old. They are all depleting. On the other hand, central banks have huge Gold reserves above ground — and they are less interested in selling than in the past.

If you adjust Gold for inflation and go back to its former all-time high in 1980, Gold should be over $2,000 an ounce right now if you want to say it’s reaching new inflation adjusted all-time highs. That does not mean Gold has to get back to a true all-time high. Nothing has to. However, I suspect that given all the money printing in the world, we will see much higher prices for hard assets.

Despite Gold’s potential, I think I will make more money in other commodities such as silver, cotton, or coffee — all of which are terribly depressed.

Damien: Speaking of other assets, as an outsider living abroad, what is your opinion on US Equities?

Jim: This is one of the few times in my life I have not had shorts anywhere in the world. I have also not had a lot of longs in the stock market because I’ve chosen longs in commodities and currencies. I have kept away from shorts because there is a gigantic amount of money being printed and it has to go somewhere. I thought some of it would end up in the stock market, and it has.

How much higher can the equity markets go? I don’t know. There are a lot of problems in the economy, but I don’t know when those problems will cause a downdraft in the stock market. All we’ve done is paper over the problem, so I expect we’ll have to deal with those issues in the future. Printing and spending money we don’t have simply prolongs the problems and makes them worse in the long run.

If the world economy improves, commodities will lead the way due to demand and shortages. If the world economy does not get better, commodities are still a great place to be because governments are printing so much money. And, if the world economy doesn’t get better, they will print even more money!

Damien: Jim, thank you for taking the time to share your outlook and opinions. I greatly appreciate it.

Jim: You are very welcome. Your site is very impressive. I look forward to staying in touch.

Comments

[Shaftsinker:]

Interesting article, although as a mining engineer I would argue against his point that "no new large gold mines have been opened in decades". Unless I'm missing the point of "large". One example, Barrick is set to begin construction in September on their 700,000 oz/year (along with 20 million oz of silver) behemoth on the Argentinian and Chilean border which is due to operate for 25 years. IAMGOLD's Rosebel operation is only a few years old and is set to produce 400,000 ounced this year. From my knowledge most of the old operations he's talking about that have reopened due to surging prices are underground mines producing less than 50,000 oz/year and typically around 25,000 oz/year.

Nov 10 09:03 AM

[Investorazz...:]

Nice interview Damien.

"You said on Bloomberg that Nouriel Roubini did not do his homework regarding the asset bubbles about which he is now warning. Can you explain what homework he did not do?

Jim: All of it."

Ouch!

Nov 10 09:09 AM

[chris coonan:]

I think Mr. Rogers is a long term thinker, big picture kind of guy...sort of rare on Wall Street.

Nov 10 12:21 PM

[User 353732:]

The Global South will want 5 big things in the next 40 or so years as it gets richer, lives longer and before global population(according to the latest demographic ideas) peaks around mid century.
1. More protein and fruit i.e. denser calories which means a lot more animal feed and healthier calories which means a lot more demand for orchards and groves i.e. robust demand for agriculture, meat herds, dairy products and seafood.....Rising real prices but not a rising share of disposable income as income increases faster than spending on food

2. More mobility and communications( switched bandwidth): which means a lot more energy from all sources, despite great efficiency gains, but especially hydrocarbons and nuclear energy.....Rising real prices for energy will attract investment and talent but will not extinguish demand growth

3.More infrastructure of all kinds, from public health and logistics to real estate and energy distribution: infrastructure requires vast amounts of iron ore, bauxite and copper......Rising real prices for ores and metals will attract risk capital and talent

4. A store of value for their wealth decoupled from the disgraced dollar and from Western currencies in general: this implies an international currency that is based at least in part on real assets, monetary metals, bandwidth and nuclear technology: all things the US and West cannot corrupt and degrade. Gold , silver, platinum and rare earths may enjoy decades of popularity as the dollar becomes the "barbarous relic"

5. Greater national security as the US fades and no nation is able to replace it as global hyperpower: a dangerous and fragmented world is also a heavily armed world. Weapons and complex weapon systems , air, land, sea and space based will enjoy robust demand outside the declining West and they need a lot of metal for manufacturing, platforms , transportation and delivery methods. Declining defense spending in Japan and Europe will be more than offset by rapid growth in defense spending in the Global South. Again this means strong demand for ores and metals.

Nov 10 12:34 PM

[Mayascribe:]

Wonderful, short and concise interview.

Nov 10 01:40 PM

[Dr. O:]

Here is a link to a 40 minute interview with Jim on Bloomberg from July (www.youtube.com/watch?...).

He reiterates his point of view: more money, higher prices, inflation, etc. What I found particularly interesting was watching the Bloomberg ticker as the interview progressed. Gold at 948, Silver at 13.55, oil at 65.

I personally think Jim is right, and I have one additional reason I haven't heard anyone else discuss. Since gold has only recently made new nominal highs (not inflation adjusted), I was wondering what the value of US gold reserves are in current gold prices. A mere 300 billion or so.

In fact the value of all the gold in the world is only a few trillion dollars at current prices. Really just a fraction of the the value of all the paper assets in the world.

So I'm wondering if we are merely at the beginning of a seismic shift in the revaluation of hard assets, including precious metals, relative to paper assets like stocks, bonds, currencies, and various other financial instruments.

If so, the sky is the limit for gold and silver and maybe oil as well. Although oil price is self correcting due to demand destruction. Gold and silver not so much because investment demand can easily compensate for a decrease in jewelry demand.

Long GLD, SLV, GDX, QLD, and some bullion.

Nov 11 07:59 AM